Latrobe Magnesium (ASX:LMG) and partner RWE Power have completed a concept study over their magnesium extraction project, in Germany, concluding it is economically viable.

RWE Power is part of the RWE Group in Germany and has signed a confidentiality agreement to examine LMG's extraction technology to produce magnesium metal from fly ash at its Hambach coal mine.

The magnesium plant is forecast to produce 40,000 tonnes of magnesium per year, and 320,000 tonnes of cementitious material.

RWE Power uses a broad energy mix of brown coal, hydro and nuclear power stations and is also a driver of innovation for coal fired power stations and CO2-avoidance.

In 2012, the coal content of RWE's resource was reported to be around 1.5 billion tonnes, over a 30 year project life, and the magnesium project will only involve about 33% of the annual coal output of the Hambach mine.

As the Hambach brown coal fly ash contains a higher iron element than some Latrobe Valley fly ash, LMG’s hydromet process was expanded to include a magnetic separation step.

Recent test work showed that this step, combined with a conditioning step, removed approximately 80% of the iron in the fly ash.

The precipitate produced contained up to 84% iron oxide, which will be further investigated to determine whether a magnetite product can be developed for sale.

The financial model indicated that both the operating and capital costs are slightly lower than an equivalent 40,000 tonne per annum plant in Australia, however the higher German tax rate means that the net present value is similar to LMG's Latrobe Valley project.

In June, LMG is due to meet with RWE Power executives to discuss how the parties will progress the project, define milestones and indicative timetables.

Currently, Europe imports most of its 150,000 tonne annual magnesium requirement from China, so LMG's technology could reduce reliance on imported magnesium.

LMG is lightly capitalised at $4 million, so further movement towards commercialisation could have a substantial positive affect on its market capitalisation.

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